GBPJPY: More downside pressures in store? The daily studies of GBPJPY pair offer a simple classical setup since prices have moved aggressively to the downside after placing the significant short-term peak of 189.65, penetrating 23.6% and 38.2% Fibonacci retracement of the entire rally from 167.89 significant low to the aforementioned high. These declines open the door up towards 61.8% Fibonacci level; noting that, the market has already placed a lower top in the 187.76 regions. Actually, the GBPJPY pair should breach through 50% Fibonacci level to be able to challenge the next Fibonacci level and we believe that it will take out this important support due to the following technical factors: Breaching through 181.35 has turned this tough support into classical resistance. The strength of the reversal from 189.65 appears clearly on Vortex indicator. The bearishness appearing on MACD traditional along with negative histogram. Note: Relative Strength Index-RSI14- may cause some kind of fluctuation but we don’t think it has the ability to change the current downtrend, which appears obviously over weekly and monthly studies. Educational Part: What is Vortex indicator? In the January 2010 edition of Technical Analysis of Stocks & Commodities, “The Vortex Indicator” article was published to describe an indicator intended to identify the start of a new trend or the continuation of existing trend within financial markets. Vortex was created by Etienne Botes and Douglas Siepman based on directional movements index (DMI). The concept of DMI was defined by J.Welles Wilder in his classic 1978 book “New Concepts In Technical Trading Systems”. The result of his work inspired the creation of Vortex Indicator. Our indicator is made up of two oscillators measuring upside and downside movements, inspired by the vortexes of water that occur in rivers. Simply speaking, you can notice a vortex pattern on charts via connecting the candlesticks with the highs in consecutive candles, and then the highs with the consecutive lows as seen on the figure below. It is all about crossovers as when VM+ crosses above VM- long positions should be opened, and when VM- crosses above VM+ short orders should be placed. The following chart of the EURUSD pair over daily basis clarifies the signals given by Vortex and their results. Notes: Similar to most indicators, Vortex can be used in all time frames but in lower time frames-such as 15 or 5 minutes- many false signals will appear. So that, I prefer using Vortex on daily chart and bigger time frames in order to avoid the noise of markets. Positions should be placed after the last candle closes, while we have confirmed crossover. Adding momentum indicators-such as RSI 14- reduces false signals of Vortex. Stop loss should be placed below the candle of the bullish crossover and above the candle of the bearish crossover.
Posted on: Wed, 14 Jan 2015 08:02:35 +0000
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